Can Punitive Damages be Awarded in Derivative Actions

Yes, punitive damages can be awarded in derivative actions, but these awards often come with certain conditions. Punitive damages are typically awarded when the tort committed involves fraud, actual malice, deliberate violence or oppression, or when the defendant displays willful or grossly negligent behavior that shows a wanton disregard for the rights of others. This means that the defendant’s conduct must show a high degree of moral culpability for such damages to be awarded.

There are specific cases in which courts have allowed for punitive damages in derivative actions. For instance, in Caparos v. Morton, punitive damages were awarded in a derivative action for a breach of fiduciary duty against general partners.

It’s important to note that punitive damages are generally only awarded in the presence of compensatory damages. As established in Groshek v. Trewin and reaffirmed in Epic Systems Corp. v. Tata Consultancy Services Ltd., punitive damages cannot be awarded when the recovery of compensatory damages is not justified. This suggests that the availability of punitive damages is governed by whether compensatory damages are recoverable, not by whether an “actual injury” has been inflicted.

The case of Exxon Shipping Co. v. Baker also suggests that a punitive award should be limited to an amount equal to compensatory damages.

In Illinois, punitive damages have certain restrictions. For instance, they may not be recovered in cases of medical or legal malpractice.

Retaining Lubin Austermuehle, or any law firm, for representation in a derivative lawsuit involving a closely held business is a significant decision and should be based on several key factors:

  1. Concentration in Business and Corporate Law: Ensure that the firm has extensive experience and knowledge in business and corporate law, especially in dealing with matters related to closely held businesses. This expertise is crucial for understanding the unique legal and operational complexities of such businesses.
  2. Experience in Derivative Lawsuits: A derivative lawsuit, where shareholders sue on behalf of the corporation, requires specific procedural knowledge and experience. It’s important that the firm has a track record of successfully handling derivative lawsuits.
  3. Understanding of Your Business and Industry: The firm should have a solid understanding of your specific business and industry. This knowledge enables them to provide tailored advice and representation that takes into account industry-specific regulations and practices.
  4. Reputation and Client Testimonials: Research the firm’s reputation in the legal community and among past clients. Positive testimonials and a strong reputation can be indicative of the quality of service and success rate.
  5. Communication and Availability: Ensure that the firm is known for good communication and is available to address your concerns promptly. In complex legal matters, regular updates and clear explanations are essential.
  6. Strategic Approach: The law firm should be able to outline a clear and strategic approach to your case, including potential risks and benefits. Understanding their approach will help you gauge how they plan to represent your interests.
  7. Costs and Billing Practices: Understand their fee structure and billing practices. It’s important to have clarity on how costs will be calculated and billed.
  8. Personal Comfort and Trust: Lastly, it’s essential that you feel comfortable and trust the attorneys who will represent you. Personal rapport and confidence in their ability to represent your interests are critical.

For a free consultation call us at 630-333-0333 or contact us online.

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